It’s not just the FDA that is making life difficult for medical device companies. Executives are having to follow sales opportunities as medical care shifts out of hospitals into homes and physician offices. They are having to revamp their entire business model to survive in the new world of the ACA.
A.T. Kearney has identified the five forces that are forcing the device industry to evolve in this new report: Medical Devices: Equipped for the Future? In addition to spelling out the threats, the analysts have a guide for how to start building a new business model.
First, what’s at risk by keeping the status quo?
With the Rise of AI, What IP Disputes in Healthcare Are Likely to Emerge?
Munck Wilson Mandala Partner Greg Howison shared his perspective on some of the legal ramifications around AI, IP, connected devices and the data they generate, in response to emailed questions.
The analysts predict operating margins will drop by 8 points between now and 2020: “Companies will no longer be able to earn premium margins by simply selling clinical features and new devices into established markets.”
According to this analysis, today’s business models will need to become much more distinctive and proprietary for device companies to survive these five disruptors and keep making money. See the chart at the top of this post to see how each of the five forces are affecting segments of the industry differently. The next chart shows how companies are starting to adapt.
Dave Powell, A.T. Kearney partner and study co-author, said, “While the future contours of the medical device industry remain to be defined, radical change is inevitable, and the companies who embrace it will both shape the industry and profit from it.”
The authors provide nine strategic questions executives need to consider. They also predict two changes in the focus of M&A activity: 1) There will be more large-scale deals and more activity from incubators and seed investors; 2) Geography will become a more important factor in acquisitions.
A Personalized Approach to Medication Nonadherence
At the Abarca Forward conference earlier this year, George Van Antwerp, managing director at Deloitte, discussed how social determinants of health and a personalized member experience can improve medication adherence and health outcomes.
Here are the five forces that are demanding a new way of doing business.
1. New healthcare delivery models
This chart is a great illustration of one of the five disruptors. Two forces are at work here: other healthcare providers are becoming more important – such as nurses, physical therapists, home healthcare workers, and pharmacists and care is shifting out of hospitals into doctors’ offices, homes and ambulatory clinics.
The analysts point out that medical device companies will need “a whole new set of capabilities from product design and manufacturing to marketing, sales, distribution, service bundling, partnership management and analytics.”
2. Heightened regulatory scrutiny
This chart shows how regulatory forces have gotten stronger in the last few years. The analysts also give this supporting evidence:
- FDA audits have increased by 40 percent in the past 12 months.
- The number of warning letters has risen by 24 percent over the past two years.
- In 2011, the FDA created a class IIb categorization with higher approval hurdles and suggested changing the 510(k) process.
- In 2013, a new standard took effect forcing companies to conduct a deeper assessment of device and risk safety
- This comment from a CEO, “The FDA is in one of its extreme cycles. But, as it also drives transparency of outcomes — unlike before — it’s very likely to stay that way.”
3. Need to serve lower socioeconomic classes
The analysts say that the “emerging markets will save us” theory is false. Executives they interviewed have not figured out how to make the “Western” approach work in other parts of the world. The report suggests that companies target “less affluent segments that can offer significant absolute profit potential with the right solutions” in traditional markets. Making money from Americans who now have health insurance for the first time “will require new business models, lower price points, and more value-based product offerings than those of today.”
4. Power shift to payers and providers
This is not a new trend, but this report explains it in the starkest terms I’ve heard, “While physicians’ preferences still matter, their freedom to choose can no longer be taken for granted.”
5. Unclear sources of innovation
The “just buy it” approach to innovation is faltering because of the lower levels of capital going to startups. Also, see the previous point about payers making the call about what new products make it onto the list of reimbursable products.
A.T. Kearney interviewed more than 30 global medical device industry executives from 20 manufacturers, representing $80 billion in revenue. Based on this research, A.T. Kearney partners Tim Durst and Dave Powell identified five major disruptive forces shaping the medical device industry.
Bill Tribe, A.T. Kearney principal and co-author of the study commented, “The question for executive teams is how they can navigate the disruptors and define their unique path, recognizing that the industry is changing now, and the industry leaders of the future are already defining how and where they expect to compete.”
Read the entire report here.
